1963 (8) TMI 54 - HC - Income Tax

Taxability of association's commission under Income-tax Act, 1922 upheld by Karnataka HC.

Bellary District Mine Owners Association Ltd. Versus Commissioner of Income-Tax

The Karnataka High Court held that the commission earned by the association for specific services provided to some members was taxable under section 10(6) ... - Issues:1. Whether the sum collected by the assessee as commission is chargeable to income tax under section 10(6) of the Income-tax Act, 1922Rs.Analysis:The judgment by the Karnataka High Court involved a case where the Bellary District Mine Owner's Association Ltd., an association of mine owners, entered into a contract with the State Trading Corporation of India for the sale of iron ore. The association charged a commission of Re. 1 per ton of iron ore sold by its members. The primary issue was whether this commission was liable to be assessed under section 10(6) of the Income-tax Act, 1922.The court examined section 10(6) of the Act, which states that a trade association performing specific services for its members for remuneration related to those services shall be deemed to carry on business, and the profits shall be taxable. The court established that the association was indeed a trade association and the commission earned was for specific services provided to some members. It was noted that not all members benefited from the commission, but all members shared in the benefits. This lack of complete identity between contributors and participators negated the principle of mutuality, bringing the case within the purview of section 10(6).Drawing parallels with a Supreme Court case involving the Calcutta Stock Exchange Association, the court emphasized that specific services provided for remuneration fall under the scope of section 10(6). The court clarified that the term 'business' in this context refers to a 'deemed business' and not in the traditional sense. The judgment also referenced another Supreme Court decision to support the interpretation of section 10(6) in this case.Despite arguments based on a different case, the court concluded that the commission collected by the association was indeed chargeable to income tax under section 10(6). The judgment favored the department, ruling in the affirmative on the question posed, and directed the assessee to pay the costs of the reference.In summary, the court held that the commission earned by the association for specific services provided to some members was taxable under section 10(6) of the Income-tax Act, 1922. The judgment emphasized the lack of complete identity between contributors and beneficiaries, leading to the rejection of the principle of mutuality in this case. The ruling aligned with precedents set by previous Supreme Court decisions and upheld the taxability of the commission collected by the association.